Export incentives: Aligning new policy with WTO norms to benefit MSMEs most

As a benefit to exporters, the Merchandise Exports from India Scheme (MEIS) was introduced in the Foreign Trade Policy of India for 2015-20. The intention behind MEIS was to offset infrastructural inefficiencies and associated costs, thereby making India’s products more competitive in the global market. The benefits available under MEIS are in the form of transferrable duty credit scrips which the exporter can use for the payment of Customs duties applicable on imports. Given such significant benefits, MEIS has proved to be crucial in reducing the overall cost involved in exports and has especially been popular among the country’s MSME sector which in the previous financial year accounted for almost half of the country’s exports.

Violating WTO Guidelines

Nevertheless, the response from the international community was not so overwhelming as the USA considered MEIS to be in direct violation of the World Trade Organisation (WTO) Guidelines (WTO Guidelines). As per the WTO Guidelines, for a country to offer export subsidies, its per capita Gross National Income (GNI) could not exceed $1000 for three consecutive years. The USA argued that India became ineligible to offer subsidies in 2017 when it surpassed the above threshold for three consecutive years.

The violation is still debatable, particularly since the Government is confident that the eight-year period of phasing out export subsidies granted to developing countries is applicable to India. However, in the wake of this backlash, the Indian Government may not want to disturb the delicate trade equilibrium.

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Almost unanimously regarded as the country’s engine of growth, the country’s MSME sector is understandably at the centre of economic policymaking. Any policy revision adversely affecting the MSME sector has the potential to cause economic disruption since it puts to risk almost 63 million businesses. A complete withdrawal of the MEIS in response to international pressure would have placed an additional burden on the MSME sector which is already struggling to counter the reduction in demand due to global economic slowdown. Keeping this in mind, the Government has introduced the Rebate of State & Central Taxes and Levies (RoSCTL) Scheme as an interim measure.